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Catching up or getting stuck: convergence in Eastern European economies

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  • Istvan Konya

    (Corvinus University of Budapest, and Centre for Economic and Regional Studies)

Abstract

The paper studies the convergence and growth behavior of 11 Central and Eastern European members states of the European Union between 2000–2019, using a modified development accounting approach based on the neoclassical growth model. The main goal of the exercise is to decompose the still existing development gap relative to Western Europe (Austria) into three components: convergence, productivity, and long-run factors. The latter may include general institutional features such as population growth, or capital market imperfections measured by the capital wedge. The capital wedge is identified by leveraging the neoclassical growth model’s ability to explain the observed behavior of the capital-output ratio. The main conclusions are that for most countries, lower productivity and capital distortions are both important to understand underdevelopment. Economic policy, therefore, should primarily target productivity growth and a free and efficient capital market.

Suggested Citation

  • Istvan Konya, 2023. "Catching up or getting stuck: convergence in Eastern European economies," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(2), pages 237-258, June.
    • Handle: RePEc:spr:eurase:v:13:y:2023:i:2:d:10.1007_s40822-023-00230-2
    DOI: 10.1007/s40822-023-00230-2
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    More about this item

    Keywords

    Convergence; Development accounting; Eastern Europe; Neoclassical growth model; Capital wedge;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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